SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1994 Commission File Number 1-1687
PPG INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 25-0730780
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One PPG Place, Pittsburgh, Pennsylvania 15272
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (412) 434-3131
As of April 25, 1994, 106,258,219 shares of the Registrant's common stock,
par value $1.66-2/3 per share, were outstanding.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
PPG INDUSTRIES, INC. AND SUBSIDIARIES
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Index
Part I. Financial Information Page(s)
Item 1. Financial Statements:
Condensed Statement of Operations................................ 2-3
Condensed Balance Sheet.......................................... 4
Condensed Statement of Cash Flows................................ 5
Notes to Condensed Financial Statements.......................... 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................9-10
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders....... 11
Item 6. Exhibits and Reports on Form 8-K.......................... 11
Signature............................................................ 12
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Operations (Unaudited)
Three Months Ended March 31
1994 1993
(Millions)
Net sales.................................... $1,476.9 $1,446.7
Cost of sales................................ 911.8 914.0
Gross profit............................... 565.1 532.7
Other expenses:
Selling, general and administrative........ 216.0 217.5
Depreciation............................... 78.5 84.6
Research and development................... 49.0 50.3
Interest................................... 21.8 28.0
Business divestitures
and realignments (Note 5)................ -- .7
Other charges.............................. 15.1 21.0
Total other expenses..................... 380.4 402.1
Other earnings............................... 24.9 56.3
Income before income taxes
and minority interest...................... 209.6 186.9
Income taxes................................. 83.8 74.7
Minority interest............................ 3.9 2.1
Income before cumulative effect of
accounting changes......................... 121.9 110.1
Cumulative effect of accounting
changes (Note 2):
Other postretirement and postemployment
benefits, net of income taxes
of $231.9 million...................... -- (363.2)
Income taxes............................. -- 90.4
Net income (loss)............................ $ 121.9 $ (162.7)
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Operations (Unaudited)
(Continued)
Three Months Ended March 31
1994 1993
Earnings (loss) per share (after giving
effect to 100% stock distribution):
Income before cumulative effect of
accounting changes....................... $ 0.57 $ 0.52
Cumulative effect of accounting changes:
Other postretirement and
postemployment benefits............... -- (1.71)
Income taxes........................... -- 0.42
Earnings (loss) per share.................. $ 0.57 $ (0.77)
Dividends per share (after giving effect
to 100% stock distribution, Note 6)......... $ 0.27 $ 0.25
Average shares outstanding (after giving
effect to 100% stock distribution,
in millions, Note 6)........................ 212.9 212.4
<FN>
The accompanying notes to condensed financial statements are an integral
part of this statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Balance Sheet (Unaudited)
March 31 Dec. 31
1994 1993
(Millions)
Assets
Current assets:
Cash and cash equivalents.................. $ 116.9 $ 111.9
Receivables-net............................ 1,221.4 996.7
Inventories (Note 3)....................... 718.2 683.3
Other...................................... 227.1 234.0
Total current assets..................... 2,283.6 2,025.9
Property (less accumulated depreciation of
$3,321.9 million and $3,254.6 million)..... 2,762.7 2,787.3
Investments.................................. 296.9 264.5
Other assets................................. 559.0 573.8
Total.................................... $5,902.2 $5,651.5
Liabilities and Shareholders' Equity
Current liabilities:
Short-term borrowings and obligations
under capital leases..................... $ 475.8 $ 355.1
Accounts payable and accrued liabilities... 929.9 921.2
Income taxes............................... 54.6 4.7
Total current liabilities................ 1,460.3 1,281.0
Long-term debt and obligations under
capital leases......................... 771.9 774.0
Deferred income taxes.................... 277.5 268.6
Accumulated provisions................... 299.5 282.5
Other postretirement benefits (Note 2)... 521.5 520.4
Minority interest........................ 56.1 51.9
Total liabilities...................... 3,386.8 3,178.4
Shareholders' Equity
Common stock................................. 242.1 242.1
Additional paid-in capital................... 308.3 297.5
Retained earnings............................ 3,502.2 3,436.8
Treasury stock............................... (1,284.1) (1,224.7)
Unearned compensation........................ (178.6) (182.5)
Minimum pension liability adjustment......... (36.2) (36.1)
Currency translation adjustment.............. (38.3) (60.0)
Total shareholders' equity............... 2,515.4 2,473.1
Total.................................... $5,902.2 $5,651.5
<FN>
The accompanying notes to condensed financial statements are an integral
part of this statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Condensed Statement of Cash Flows (Unaudited)
Three Months Ended March 31
1994 1993
(Millions)
Cash from operations......................... $ 83.5 $ 103.5
Investing activities:
Capital spending.......................... (86.1) (107.8)
Other..................................... 3.4 1.8
Cash used for investing activities... (82.7) (106.0)
Financing activities:
Net change in borrowings with
maturities of three months or less...... 111.3 96.4
Proceeds from other short-term debt....... 15.6 .2
Repayment of other short-term debt........ (8.2) (9.4)
Proceeds from long-term debt.............. 3.1 --
Repayment of long-term debt and capital
leases.................................. (7.8) (8.0)
Repayment of loans by employee stock
ownership plan.......................... 3.9 6.4
Purchase of treasury stock, net........... (57.1) (2.2)
Dividends paid............................ (57.4) (53.0)
Cash provided by
financing activities............... 3.4 30.4
Effect of currency exchange rate changes
on cash and cash equivalents............... .8 .1
Net increase in cash
and cash equivalents....................... 5.0 28.0
Cash and cash equivalents,
beginning of period........................ 111.9 61.4
Cash and cash equivalents,
end of period.............................. $ 116.9 $ 89.4
<FN>
The accompanying notes to condensed financial statements are an integral
part of this statement.
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
Notes to Condensed Financial Statements (Unaudited)
1. Financial Statements
The condensed financial statements included herein are unaudited. In
the opinion of management, these statements include all adjustments,
consisting only of normal, recurring adjustments, necessary for a fair
presentation of the financial position of PPG Industries, Inc. and
subsidiaries (the Company or PPG) at March 31, 1994, and the results of
their operations and their cash flows for the three months ended March
31, 1994 and 1993. These condensed financial statements should be read
in conjunction with the financial statements and notes thereto included
in PPG's Annual Report on Form 10-K for the year ended December 31,
1993.
The results of operations for the three months ended March 31, 1994 are
not necessarily indicative of the results to be expected for the full
year.
2. Changes in Methods of Accounting
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This standard requires
accrual, during the years that the employee renders the necessary
services, of the expected cost of providing postretirement benefits to
an employee and the employee's covered dependents. The Company's
previous practice was to recognize these costs as benefits were paid.
PPG elected to recognize immediately the cumulative effect of this
accounting change, which resulted in an after-tax charge of
$357.1 million (including $6.4 million for an equity affiliate) in 1993.
The incremental after-tax impact of accruing the cost of these
postretirement benefits for 1993 was not material.
The Company also adopted SFAS No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. This standard requires an asset and
liability approach to accounting for income taxes. Deferred income tax
liabilities and assets reflect the tax effects of (1) temporary
differences between the carrying amount of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes and (2) operating loss and tax credit carryforwards. Deferred
income tax assets, such as benefits related to net operating loss
carryforwards, are recognized to the extent that realization of such
benefits is more likely than not. Changes in enacted tax rates or laws
result in adjustments to the recorded deferred income tax assets and
liabilities in the period that the tax law is enacted.
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The $90.4 million cumulative effect of this accounting change as of
January 1, 1993, was credited to income in 1993. The effect of the
accounting change on 1993 net income, exclusive of the cumulative effect
as of January 1, 1993, was not material. Previously, the Company
applied the deferral method specified in Accounting Principles Board
Opinion No. 11 to provide for deferred income taxes with respect to
timing differences between the recognition of income and expense items
for financial reporting purposes and income tax purposes.
Effective January 1, 1993, the Company also adopted the provisions of
SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This
standard requires an accrual method of recognizing the cost of
postemployment benefits, such as disability, severance and workers'
compensation benefits. Since the Company previously accounted for most
of these benefits on an accrual basis, the cumulative after-tax charge
as of January 1, 1993, of the accounting change was only $6.1 million.
The incremental after-tax impact of accruing the cost of these benefits
for 1993 was not material.
3. Inventories
Inventories at March 31, 1994 and December 31, 1993 are detailed below.
March 31 Dec. 31
1994 1993
(Millions)
Finished products and work in process............. $483.6 $451.8
Raw materials..................................... 121.2 117.5
Supplies.......................................... 113.4 114.0
Total........................................... $718.2 $683.3
<FN>
Most domestic and certain foreign inventories are valued using the last-
in, first-out method. If the first-in, first-out method had been used,
inventories would have been $209.1 million and $210.1 million higher at
March 31, 1994 and December 31, 1993, respectively.
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4. Cash Flow Information
Cash payments for interest were $18.6 million and $21.5 million for the
three months ended March 31, 1994 and 1993, respectively. Net cash
payments for income taxes for the three months ended March 31, 1994 and
1993 were $12.6 million and $25.3 million, respectively.
5. Business Segment Information
Three Months Ended March 31
1994 1993
(Millions)
Net sales:
Coatings and Resins $ 621 $ 573
Glass 568 551
Chemicals 288 282
Other -- 41
Total $1,477 $1,447
Operating income:
Coatings and Resins $ 124 $ 100
Glass 76 56
Chemicals 36 43
Other 3 (4)
Business divestitures and
realignments (1) -- (1)
Total operating income 239 194
Interest - net (20) (25)
Other unallocated
corporate (expense) income - net (9) 18
Income before income taxes and
minority interest $ 210 $ 187
<FN>
(1) The $1 million pre-tax charge in 1993 relates
to the glass group.
6. Stock Split
On April 21, 1994, the Board of Directors approved a two-for-one stock
split in the form of a 100% stock distribution. The distribution is
payable on June 10, 1994, to shareholders of record on May 10, 1994.
All share and per share data have been restated to give effect to the
stock split.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Performance Overview
Sales for the first quarter of 1994 and 1993 were $1.48 billion and
$1.45 billion, respectively. Higher volumes in each of the business segments
more than offset the absence of sales in 1994 from the Biomedicals Systems
Division which is to be divested and glass businesses which were divested or
discontinued. The unfavorable effect of translating European currencies and
lower overall prices in the Chemicals segment negatively impacted sales.
The gross profit percentage increased to 38.3% from 36.8% in the prior year's
quarter. Contributing factors to the improvement were lower manufacturing
costs, sales mix gains, and benefits from divested and discontinued
businesses and businesses to be divested. Lower overall sales prices partly
offset these gains.
On April 21, 1994, the Board of Directors approved a two-for-one stock split
in the form of a 100% stock distribution. The distribution is payable
June 10, 1994 to shareholders of record on May 10, 1994. All share and per
share data have been restated to give effect to the stock split.
Net income and earnings per share for the quarter were $121.9 million and
$0.57, respectively. In the first quarter of 1993, the Company experienced
a net loss and loss per share of $162.7 million and $0.77, respectively. The
prior year amounts included a net charge of $272.8 million or $1.29 per share
for three accounting changes (see Note 2 to the condensed financial
statements). Also included was an 8 cent per share gain from the sale of our
interest in an insurance company. Current period earnings were favorably
impacted by the factors that contributed to the gross profit percentage
improvement, higher sales volumes, and lower interest expense and
environmental remediation costs.
Performance of Business Segments
Coatings and resins sales increased to $621 million from $573 million for
the first quarter of 1993. Operating earnings for the corresponding periods
were $124 million and $100 million, respectively. Contributing to the sales
increase were higher volumes for most of the segment's major product lines,
including sales from the January 1994 acquisition of Akzo's European original
equipment auto coatings business and slightly higher overall prices,
principally from refinish coatings. The unfavorable effect of translating
European currencies partially offset these gains. The increase in operating
earnings was attributable to the factors that contributed to the higher sales
and reduced manufacturing costs. Higher overhead costs partly offset these
improvements.
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Glass sales increased to $568 million in the first quarter of 1994 from
$551 million in the prior year period. Operating income increased to
$76 million from $56 million in the corresponding prior period. Higher
volumes in most of the segment's major businesses and higher sales prices for
North American automotive replacement and flat glass contributed to the sales
increase. The loss of sales from divested and discontinued businesses, the
unfavorable effects of translating European currencies, lower European flat
glass volumes and reduced prices for North American automotive original and
European fiber glass reinforcement and flat glass products substantially
offset these improvements. The increase in operating earnings was
principally the result of benefits from manufacturing efficiencies and
divested and discontinued businesses and the factors that contributed to the
sales increase.
Chemical sales increased to $288 million from $282 million in the first
quarter of 1993 while operating earnings declined to $36 million from
$43 million for the corresponding prior period. The increase in sales is
primarily attributable to higher volumes for caustic soda and certain
chlorine derivative products, Transitions (registered trademark) optical
lenses and most specialty chemical products. Significantly offsetting these
improvements were lower chlor-alkali prices. The lower operating earnings
were the result of lower chlor-alkali sales prices and higher energy costs,
offset in part by the higher sales volumes.
Other Factors
The decline in interest expense was the result of lower average borrowings
and interest rates for the first quarter of 1994 as compared with the
corresponding period in 1993.
Lower other earnings and the change in other unallocated corporate
(expense)income - net were the result of the absence of the gain from the
sale of our interest in an insurance company, which occurred in the first
quarter of 1993.
The increase in accounts receivable is principally the result of seasonally
higher sales in March 1994 as compared with those in December 1993 as well as
a seasonal extension of extended credit terms to customers.
Higher short-term borrowings and obligations under capital leases as compared
with such borrowings as of December 31, 1993 were principally the result of
financing the seasonal increase in working capital and the completion of a
stock repurchase program.
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Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Registrant's Annual Meeting of Shareholders held on April 21, 1994
(the "Annual Meeting"), the shareholders voted on the following matters with
the results shown below. There were no broker nonvotes with respect to any
of these matters.
1. On the matter of the election of four directors to serve for the terms
indicated in the proxy statement relating to the Annual Meeting, the
vote was as follows:
Nominees Votes For Votes Withheld
Jerry E. Dempsey 85,477,148 827,273
Stanley C. Gault 83,293,839 3,010,582
Steven C. Mason 85,498,743 805,678
David R. Whitwam 83,327,239 2,977,182
Each of the nominees was therefore elected a director to serve for the
terms indicated in the proxy statement relating to the Annual Meeting.
2. On the matter of the election of Deloitte & Touche as auditors for the
Registrant for the year 1994, the vote was as follows:
For: 85,558,203 Against: 418,894 Abstain: 327,324
Therefore, Deloitte & Touche were elected auditors for the Registrant
for 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Computation of Earnings Per Share
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter for which this
report is filed.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PPG INDUSTRIES, INC.
(Registrant)
Date: April 29, 1994 /s/ W. H. Hernandez
W. H. Hernandez
Vice President and Controller
(Acting Principal Financial and
Accounting Officer and
Duly Authorized Officer)
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PPG INDUSTRIES, INC. AND SUBSIDIARIES
INDEX TO EXHIBITS
Exhibit
No. Description
11 Computation of Earnings Per Share